Answer: Hi Todd, thanks for your question. Vendor-Managed inventory (VMI) is a business model in which the buyer of a product provides certain information to a vendor/supplier of that product and the supplier takes full responsibility for maintaining an agreed level of inventory, usually at the buyer's store. A third-party logistics provider (3PL) can also be involved to make sure that the buyer has the required level of inventory by adjusting the demand and supply gaps.
VMI helps develop a closer understanding between the supplier and buyer by using Electronic Data Interchange (EDI) formats; with one of the most common EDI transaction sets being the 852 (Product Activity Data document). EDI 852 transaction sets may vary, but will typically contain the following information:
For each item
- Item description
- Item UPC
Data can be summarized by:
- Store
- Distribution center
Key product activity measures
- Quantity sold ($)
- Quantity sold (units)
- Quantity on hand ($)
- Quantity on hand (units)
- Quantity on order ($)
- Quantity on order (units)
- Quantity received ($)
- Quantity received (units)
The EDI 852 information can be sent from the buyer to the supplier on a weekly or daily basis. The order decision is based on the data in the 852 transmission. The supplier reviews the information that has been received from the buyer and an order determination is made based on the existing agreement between the supplier and buyer.
The EDI software will verify if the data is accurate and meaningful and will calculate a re-order point for each item based on the data and minimum stock levels agreed between buyer and supplier.
As a symbiotic relationship, VMI makes it less likely that a business will unintentionally become out of stock of an item and reduces inventory in the supply chain. Furthermore, supplier representatives in a store benefit the buyer by ensuring the product is properly displayed and store staff are familiar with the features of the product line. Suppliers benefit from more control of displays and consistent orders.
For further details on Vendor Managed Inventory (VMI) and the EDI 852 transactions set, please visit www.B2BGateway.Net or call (401) 491 9595
Louisa Gooding is Director of Sales & Marketing at B2BGateway.